New Stock Outlook | Aiming to create new growth points with power device products, can Chipmore Semiconductor return to a growth trajectory on the profit side?

Power semiconductors can minimize energy consumption and enhance the performance of automobiles, renewable energy infrastructure, and industrial equipment. Therefore, they are widely used in consumer electronics, industrial applications, and automotive fields, providing smarter, more efficient, and reliable solutions for modern electrification needs.

As more devices and systems become electrified, the role of power semiconductors has become increasingly prominent. Companies such as Silan Microelectronics, CRM, and STMicroelectronics continue to lead the growth of China's power semiconductor industry.

Recently, a company in the power semiconductor field has embarked on its journey to list in Hong Kong. According to observations from Zhitong Finance APP, Chipmore Semiconductor, established in 2019 and headquartered in Hangzhou, submitted its prospectus to the Hong Kong Stock Exchange on June 30, applying for a listing on the main board, with Huatai International as the sole sponsor.

According to data from Frost & Sullivan, based on total shipments over the past decade, Chipmore Semiconductor ranks first in the global OLED display PMIC (Power Management Integrated Circuit) market; if calculated by revenue in 2024, Chipmore Semiconductor ranks second in the global OLED display PMIC market and third in the global smartphone PMIC market. This indicates that Chipmore Semiconductor has entered the first tier of the industry in both the global smartphone PMIC market and the OLED display PMIC market.

However, from a performance perspective, Chipmore Semiconductor's profit performance is not optimistic. From 2022 to 2024, Chipmore Semiconductor's revenues were 1.688 billion (RMB, the same below), 1.640 billion, and 1.574 billion, showing a slight downward trend; during the same period, the adjusted net profits were 238 million, 76.923 million, and -53.334 million, with net profits declining significantly and turning from profit to loss.

Such performance may have a certain impact on Chipmore Semiconductor's IPO valuation, but the key question is why has Chipmore Semiconductor's profit changed so dramatically in just three years? Can it improve in the future?

Nearly 70% of Revenue Comes from Overseas Markets

In 2018, the domestic semiconductor industry in China was swept by a wave of domestic substitution under the U.S. blockade. Seizing this opportunity, Chipmore Semiconductor was established in Hangzhou in September 2019. By 2020, Chipmore Semiconductor acquired the Korean company SMI, which focuses on power management ICs, thus entering the power semiconductor track and bringing in Dr. Huh Youm, the founder of SMI (former Executive Vice President of Haili), to join the company's core team.

From a business model perspective, Chipmore Semiconductor defines itself as a new type of Fab-Lite integrated device manufacturer (IDM), meaning it is a vertically integrated company in power semiconductors that encompasses IC design, manufacturing, and sales. Fab-Lite refers to a new type of IDM variant, characterized by balancing cost and controllability through partial outsourcing of manufacturing processes.

As of now, Chipmore Semiconductor's core business covers research, development, and sales of power management ICs and power devices in the power semiconductor field. The company's products span three major areas: mobile technology, display technology, and power devices, and are widely used in automobiles, telecommunications equipment, data centers, industrial applications, consumer electronics, and many other fields From the perspective of revenue structure, power management ICs are the main source of revenue for Chipmore Semiconductor. In 2024, the revenue from power management IC products accounted for as much as 90.7% of the company's total revenue, with mobile accounting for 48.5% and display accounting for 42.2%. The revenue share of power device products is only 9.3%.

The year-on-year decline in Chipmore Semiconductor's revenue is due to the continuous decrease in revenue from power management IC products sold overseas. According to the prospectus, the revenue from Chipmore Semiconductor's power management IC products from 2022 to 2024 was 1.655 billion, 1.597 billion, and 1.428 billion yuan, showing a clear downward trend. Both mobile and display products have continued to decline.

From a geographical perspective, the continuous decline in Chipmore Semiconductor's revenue is due to the decreasing income from overseas. According to the prospectus, nearly 70% of Chipmore Semiconductor's revenue comes from overseas markets, with revenue from overseas markets being 1.231 billion, 1.216 billion, and 1.072 billion yuan from 2022 to 2024.

By analyzing the revenue structure and geographical regions, it is not difficult to see that the decline in revenue from power management IC products sold overseas has dragged down the company's overall revenue performance. Chipmore Semiconductor also stated in the prospectus that this is mainly due to unfavorable factors faced by overseas customers, such as weak downstream consumer demand and a sluggish consumer electronics market.

However, this also exposes Chipmore Semiconductor's excessive reliance on major customers. According to the prospectus, in 2024, the revenue share of Chipmore Semiconductor's top five customers reached 77.6%, with customer A accounting for as much as 61.4%. In 2022 and 2023, the revenue share of customer A was as high as 66.7% and 65.7%, respectively.

Continuous High R&D Investment to Create a New Growth Curve with Power Device Products

In fact, excessive reliance on a single customer can not only lead to increased revenue volatility but also bring issues such as imbalanced bargaining power and difficulties in raising product prices, especially when market competition intensifies. Companies often need to implement more aggressive price reductions to stabilize business relationships.

According to the prospectus, due to intensified competition in overseas markets, the gross profit margins of Chipmore Semiconductor's power management IC products from 2022 to 2024 were 38.1%, 36.1%, and 32.9%, a decline of 5.2 percentage points over two years, which has put pressure on the profitability of the company's power management IC business From the overall gross margin data, it is evident that the decline in gross margin for ChipMic Semiconductor is more pronounced. Data shows that from 2022 to 2024, ChipMic Semiconductor's overall gross margins were 37.4%, 33.4%, and 29.4% respectively, a drop of 8 percentage points over two years. This decline is attributed not only to the drag from power management IC products but also to the gross loss from power device products, which has affected the overall gross margin level.

This raises curiosity in the market as to why the gross margin for power management IC products exceeds 30%, while power device products are recording gross losses. There are two main reasons for this: first, power device products are facing the domestic market, which is highly competitive, resulting in relatively lower gross margins; second, the shipment scale of power device products is still not large enough, so the economies of scale have not yet been fully realized. Therefore, power device products further pressure ChipMic Semiconductor's gross margin.

While revenue and gross margin continue to decline, ChipMic Semiconductor's operating expenses (selling and marketing expenses, general and administrative expenses, research and development expenses) have been rising continuously, leading to a significant drop in the company's net profit. Data shows that from 2022 to 2024, the proportion of operating expenses to revenue for ChipMic Semiconductor was 27.2%, 36.8%, and 45.1% respectively. The rapid rise in operating expenses has severely impacted ChipMic Semiconductor's net profit, particularly in 2024, which directly resulted in an adjusted net profit loss of 53.34 million yuan.

However, behind the shift from profit to loss in adjusted net profit, it reflects ChipMic Semiconductor's response to the weakening demand from its single major customer, which is to explore new growth curves with power device products in the domestic market. The expansion of new businesses naturally drives an increase in expenses, which is particularly evident in research and development expenses. From 2022 to 2024, the proportion of research and development expenses to total revenue for ChipMic Semiconductor was 14.6%, 20.5%, and 25.8% respectively. Clearly, ChipMic Semiconductor places a high emphasis on research and development.

However, from the results, ChipMic Semiconductor's revenue proportion from power semiconductors in 2024 was 9.3%, with a gross margin of -4.6%. Although there is significant improvement compared to 2023, whether it can further grow and strengthen in the fiercely competitive domestic market remains to be seen. The slope of revenue growth from power device products and the speed of gross margin improvement will be key factors determining ChipMic Semiconductor's valuation level